The Reserve Bank of New Zealand kept its official cash rate at 1.75%, saying it will maintain its accommodative monetary policy for a "considerable period" after weather hit agricultural production and GDP growth in the fourth quarter.
"Tradables inflation is projected to remain subdued through the forecast period. Non-tradables inflation is moderate but is expected to increase in line with a rise in capacity pressure," the bank said. "Over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range."
But GDP growth should improve and labor market conditions tighten, it said.
"Growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending and population growth," the bank said.